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Using Soft Systems Methods in the Indian Banking Sector
Using Soft Systems Methods in the Indian Banking Sector - Mahil Carr USING SOFT SYSTEMS METHODS IN THE INDIAN BANKING SECTOR (former working title: Information System Design: A Hermeneutic Process) Mahil Carr Institute for Development and Research in Bnaking Technology, Castle Hills, Road No. 1, Masab Tank, Hyderabad, India mahilcarr@idrbt.ac.in Keywords: Information Systems Design, Software Engineering, Hermeneutics, Interpretive Approach Abstract Traditional software engineering is often seen as a well-defined step-by-step process towards achieving a clear specific target such as a software product. However, there are contexts in which the problem to be solved is ill-structured and the process of specification itself is not a definite procedure but open to interpretation. This paper outlines a case study where standards were needed for a banking application. The manner of standards development was based on principles outlined in soft systems methodology. When several actors (and institutions) come together toward a common goal there are sometimes conflicts of interests which have a significant influence on the way the solution emerges. This paper shows how various intentions interplay in the process of technical design of systems with the example of evolving open standards for financial inclusion. The necessity of a hermeneutic process for understanding information systems design is detailed with an example. Introduction The State, as we know it today in India, emerged in the Western context and it has been handed over to India as a part of colonial inheritance. In Europe, the State evolved through various stages and its roots can be traced to Roman jurisprudence. The democratic State with Anglo-Saxon judicial system that we have in India was handed over as a part of British colonial legacy. The phases of development of the European parliamentary democracy coincided with the development of capitalism (Habermas, 1989). While the State (those following the European model) primarily looked after national defense, law and order as well as revenue collection, it also became an entrepreneur by directly undertaking economic activities in key areas of the economy where it needed to protect national interests (e.g., airlines, television, railways, nuclear energy, banking etc.). With the advent of the welfare State the classical risks that could not be handled by today’s nuclear families such as old age, unemployment and illness have also come under the purview of the State. The Indian State also operates with an inclusive growth agenda today. In the banking sector the effort to provide banking to the masses has a long history in India. Starting with the nationalization of banks, the introduction of the 1:4 license rule (for every four new branches opened one had to be in a rural region) and the establishment of the National Bank for Agriculture and Rural Development (NABARD), the introduction of Regional Rural Banks and priority sector lending. There have been several initiatives to provide thrift, credit and other financial services and products of very small amounts to the poor in rural, semi-urban or urban areas for enabling them to raise their income levels and improve living standards. Financial Inclusion Task Force in the UK has cited three priority areas requiring serious attention in the UK as: access to banking, access to affordable credit, and access to free face-to-face money advice (www.financialinclusion-taskforce.org.uk). “Financial inclusion” may be defined as the process of ensuring access to financial services and timely and adequate credit where needed by weaker sections and low income groups at an affordable cost. Extending banking to the unreachable and excluded areas where there are no bank branches, consistent power supply or communication links such as telephones or Internet is a daunting task. There is need for innovative approaches in taking banking to remote regions. The Reserve Bank of India came up the business correspondents/business facilitator model. Instead of opening full-blown brick and mortar bank branches in remote areas (an expensive proposition) it is being proposed that with the help of modern information (and communications) technology and managerial capabilities of business correspondents banking services could be extended to vulnerable groups and people in remote regions (roughly targeting four hundred million people). It is known that information technology solutions to deliver banking services have been able to reduce transaction costs (e.g., ATMs). Research in information systems has been approached through an interpretive methodology (Boland and Boland, 1978, Boland and Boland, 1989, Lee, 1991; Myers, 1994; Davis et al., 1992, Butler, 1998, Heinz, 1999, Walsham, 1995, Walsham, 2001). This paper studies the design process of financial inclusion through information and communications technology (ICT) from an interpretive approach (cf. Boland, 1978; Boland and Day, 1989). Methodologically, we take an ethnographic approach where participant observation by the author enabled the observations made in this paper. This paper views an information system as a socio-technical system i.e., “information system is a social system that uses technology” (Davis et al., 1992). It argues that information systems designing (a phase in software engineering) is a creative process where several “choices” and alternatives are available to the construction of ICT solutions albeit some ‘structural’ constraints. Given a space of choices, the resolution of the final design is an interpretive and constructive process (though the implementation of the design may follow a ‘positivist’ approach) where differing interests (economic or otherwise) of various stakeholders may be resolved through a ‘political’ process (i.e., resolving conflicts of interpretations). The rest of the paper is organized as follows: Section 2 outlines the generic model of the ICT enabled Financial Inclusion solution. Section 3 outlines the rationale for standardization. Section 4 discusses the entry of a new entity whose existential interests provided design alternatives to the proposed standards. Section 5 contrasts two differing business models each having differing political implications. Section 6 discusses how the clashes of interests are reflected in the design details. Section 7 concludes the paper. ICT Enabled Financial Inclusion Information technology should enable banks to provide services that have the following business requirements: Banking services such as deposits, withdrawals and funds transfer are to be provided. Every customer must be identified uniquely by some means especially fingerprints. Biometric authentication using fingerprints proved to be more secure than PIN authenticating. As most customers are illiterate, they would not be able use personal identification numbers (PINs) to authenticate themselves (in some pilots it was noticed the rural customers who could not keep their PIN secret had written it down on the card itself!). Both online and offline transactions must be possible Balance enquiry and mini-statement showing last ten transactions must be possible at all terminal locations. No transaction should be lost in the entire system. Figure 1: Model solution for the extension of banking services to rural regions The model solution proposed for the extending banking services initiative is outlined in Figure 1. Each customer is given a smart card with his primary account number and other personal details such as address, nominee details and contact information stored within it. The smart cards are to be used at bank terminals owned by banks and operated by business correspondents. The customer is authenticated using the biometric fingerprint of the customer stored in the smart card. These terminals are to have connectivity through any one of the channels: Global System for Mobile Communications (GSM), Code Division Multiple Accesses (CDMA), Public Switched Telephone Network (PSTN) dial-up or Ethernet depending upon the type of connectivity available at the local place of operation. However connected, the communication finally will reach the back-end intermediate financial inclusion host. All customer details and account information including current balance is held by the FI Server will periodically update the bank host. The smart card is used for customer authentication whenever transactions are made at bank terminals. 'The Need for Standardization' Several banks have ventured to provide information and communication technology based solutions for financial inclusion. The first operational definition of ‘Financial Inclusion’ has been opening of “No Frills” accounts (that permit zero-balance and with some operational constraints) for people in rural and remote regions of the country. Based on this definition several bank accounts have been opened in many parts of the country with the help of technology solution providers who offered bundled services providing smart cards, terminals and business correspondents together. As far as the technical solution architecture for financial inclusion ‘delivery channel’ has evolved, banks have separately maintained the new “No Frills” accounts on a separate platform from their regular core banking solutions (the Financial Inclusion Server offered by solution provider – see Fig. 1). The reason for this is that these accounts (considerably large in numbers in terms of millions) are essentially zero-balance accounts, where not many transactions happen and even if residual balance is there, it is quite low. In these circumstances it is costly to hold these accounts in the regular core banking solutions (CBS) as transactions in the CBS are regularly backed up. Several service providers emerged in the financial inclusion space. Each solution provider offers their own variant of smart card architecture, key management system and custom terminals with custom applications. Since India is geographically large, multiple service providers were engaged by the same bank to operate in different regions with different solutions that do not interoperate. The lack of common technical standards impaired the pace of ICT deployment for Financial Inclusion and this has led to vendor dependence for technology components. This has made solutions deployed by a particular bank solution provider specific, making a customer of a bank unable to interoperate across all outlets of the same bank. A technical committee was formed constituting bankers, systems designers; technical experts on smart cards and biometrics to evolve open standards to standardize the smart card file architecture and a bank wide key management system. An open standard was drafted and published (hereafter referred to as ‘the standard’ - http://www.idrbt.ac.in/newsroom/news/openstandard.html) using soft systems methodology (Checkland and Scholes, 1990, Checkland, 1999). Electronic Benefits Transfer and Financial Inclusion Today, various government agencies and departments in India have started to use information systems for their day to day operations e.g., health insurance schemes, road transport authorities, tax departments, railways, rural development etc. As these ministries have independently implemented their own systems there has emerged a need for an overarching e-governance framework. Apart from inclusion, another imperative of the welfare State to provide social security to people of old age and unemployed began to emerge. Especially from the perspective of the State a great need is felt to be able to deliver social security schemes such as old age pensions and employment guarantee schemes in a transparent manner that delivers aid to beneficiaries efficiently. In a diverse nation like India the process of delivery of government benefits is fraught with difficulties. To facilitate efficient delivery of government assistance avoiding leakage of funds (and also the technical necessity to provide a unique, pan-departmental interface for citizens to interact across various government systems) emerged the need for a unique identity. The unique identity is a unique number (randomly assigned without any intelligence embedded in the structure of the number) provided to every citizen of the country to identify him or her uniquely in any of the departments that require electronic transactions or processing. The Unique Identification Authority of India was created to fulfill this need (cf. http://uidai.gov.in/). The first attempt to deliver State welfare schemes of assistance and financial support in a way that is efficient and resilient from corruption was to channel the benefit through a bank account. This is where the need for identity (to uniquely identify the beneficiary) and the inclusive agenda of the State converge. This convergence necessitates that the banking information systems (and financial inclusion solutions) and the UIDA information systems to be able to communicate and interact with each other in an operational manner. The need to design a proper interface between these two systems has emerged. 'Business Models' Before looking at the details of the interface between the inclusion system and the identity system let us briefly discuss their business models. Existential necessities are translated into economic interests and business models provide the formula for a sustainable (or continuously improving) revenue stream. The ICT solution proposed in Section 2 is an “offline model” in the sense the biometric (fingerprint) customer authentication is done at the terminal (even if there is no channel connectivity) with the reference fingerprint image in the card. The UIDA proposed model is an “online model” that assumes pervasive connectivity and customer authentication is done with the reference image residing in a voluminous fingerprint database (of a billion people). A massive check for duplicate biometric features would ensure absolute uniqueness. In the “offline model” the authentication process is within the control of the card issuing bank. In the “online model” for every transaction, the bank has to route the biometric information to a central database for authentication. This means that the entity holding the database may charge a fee and this could add up to a substantial amount of revenue for UIDA. This was a ‘perceived’ threat (though the stated objective is that this service would be offered freely since it is for inclusion). Conflict of Interpretations The UIDAI proposal conflicted with the standard. The standard was for an “offline solution” whereas the interface design proposed by UIDAI was for an “online” solution. Several proposals were discussed and the design phase went through several modifications. The interface problem between the inclusion system and the identity system was to address the problem of where exactly to place the mapping of the unique identity and bank account number – within a separate entity, within UIDAI or adopt the “offline model” where the smart card carries this mapping. The first cut design was to map a designated bank account of a customer with his or her unique identity within the UIDA database. This would enable government agencies to route welfare benefits through the banking system. However, the complexity of the task itself produced the second alternative where another independent central agency was proposed. The third final proposal was to let each bank do the mapping. While other technical problems needed resolution this was finally adopted through resolving several issues interpretively. The implication of the winning solution (survival of the fittest) implies that the business model of the winner succeeds and the ‘war booty’ is for them to enjoy. This is the politics behind the conflict of interpretations Conclusion :Information systems design is architecting a solution where multiple stakeholders participate in the design process. Each stakeholder has to ‘bring home the bacon’ and therefore ‘design’ is necessarily a political process. Like designing a chair, though there are empirical, structural constraints (like the height of the chair and the weight it has to withstand – features invariant over time) that have to be adhered to, there are “choices” and “alternatives” and that is why we have a variety of chair possibilities. Information system design is necessarily a political and therefore interpretive process as there is a necessity for resolving differing perceptions and interests of various stakeholders. Design is a hermeneutic process (Ricoeur, 1974, Gadamer, 1975). There could be hidden and multiple motives behind the stated objectives. The issuing of unique identification numbers may be due to concerns of national security and ‘panoptic surveillance’ of the State (Foucault, 1975). These probable hidden truths (or latent meanings) can only be understood (Verstehen) through a process of hermeneutic suspicion and the systematic interpretation using the hermeneutic circle in a wider context of meaning REFERENCES Boland, J., and Boland, Jr., 1978. The process and product of system design. Management Science, Vol. 34, No.9 pp 887-898. Boland, R.J. and Day, W.F. "The Experience of System Design: A Hermeneutic of Organizational Action," Scandinavian Journal of Management (5: 2), 1989, pp. 87-104. Butler, T. 1998. Towards a hermeneutic method for interpretive research in information systems. Journal of Information Technology, Vol 13 pp 285-300. Checkland, P and Scholes, J., 1990. Soft systems methodology in action. John Wiley and Sons: Chichester. Chekland, P. 1999. Systems thinking, systems practice. John Wiley and Sons: Chichester. 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